The basic responsibility of a Certified Cash Manager (CCM) has been to simply monitor and regulate the flow of a firm’s working capital (i.e. its cash receipts and disbursements). This capital was largely restricted to current assets and current liabilities indicated on the balance sheet. However, technological evolutions and legislative revolutions have effectively expanded the responsibilities of a CCM to the point that this title is no longer accurate.

The Association of Financial Professionals (AFP) has changed the CCM designation to CTP, Certified Treasury Professional. This designation reflects the added responsibilities of a ‘treasury manager’ which include management of total assets and liabilities. Risk, pension, and insurance management are also possible responsibilities of a CTP (treasury manager).

New regulations

Numerous corporate bankruptcies have led to an increased call for ethics training at all corporate levels. Corporate accounting scandals have exposed weaknesses in financial regulation of corporations. This has led to the Public Company Accounting Reform and Investor Protection Act of 2002 also known as the Sarbanes Oxley Act or just SOX. Among other things, the Act established the Public Company Accounting Oversight Board, or PCAOB, to oversee the regulation and discipline of accounting firms that work for corporations. In addition, the act requires that executives take responsibility for the accuracy of financial information provided to them. The CEO or CFO must approve the accounting reports quarterly.

The Public Company Accounting Reform and Investor Protection Act of 2002 also known as the Sarbanes Oxley Act or just SOX, requires that executives take responsibility for the accuracy of financial information provided to them. The CEO or CFO must approve the accounting reports quarterly. Globalization of financial markets has led to abuse by terrorist organizations that have used these global financial markets to hide their capital reserves. Consequently, financial regulation has been included in the patriot act.

The corporate financial objective is to use capital efficiently in order to maximize shareholder return on investment. There are five areas of finance that should be considered for the efficient use of capital. They are funding, capital budget, accounting, financial risk, and financial planning. The treasury manager can be involved in one or all of these areas and must act in accordance with the specified corporate goal. To help achieve this corporate goal, the treasury manager must ensure that cash is available for daily operations.

Corporate finance roles

The treasury manager should act according to the financial decisions of the firm. Some roles of finance that affects financial decisions of an organization are:
• Funding: A firm needs capital for daily operations and to undertake capital projects. When additional capital must be raised to fund these activities, the firm must decide whether the capital structure should be in the form of debt or equity.
• Capital Budget: When a firm has capital to invest, it needs a capital budget. The capital budget should consider quantitative evaluations of alternatives, qualitative evaluations of the investment as it relates to the firm’s goals, and estimates of its return on investment.
• Accounting: Effective financial decisions depend on accurate financial information. Consequently, a thorough accounting of all financial activities should be made on a regular basis. Financial statements should comply with the Generally Accepted Accounting Principles (GAAP). The Governmental Accounting Standards Board (GASB) determines standards for public organizations. The Financial Accounting Standards Board (FASB) determines standards for private organizations.
• Financial Risk: Fluctuating interest rates, currency exchange rates, and commodity prices can all impact ( either positively or negatively) a firm’s financial situation.

A firm needs to be well aware of their exposure to financial risk. The level of exposure will influence financial decisions. Appropriate insurance and other measures should be included in financial risk management. The treasury manager can be involved with this management. Financial Planning: All of a firm’s financial data will help determine future capital needs. The treasury manager is an important source for this information since it is derived in part from daily cash flow operations. This information will facilitate appropriate financial planning and will be incorporated into financial decisions.

Corporate financial organization

The treasury manager should be aware of the firm’s financial organizational structure and the responsibilities of its officers. The highest authority within an organization is the board of directors. It authorizes activities such as borrowing, investing, issuing securities, and account opening. The chief executive officer (CEO) reports to the board of directors and oversees the corporate management team that usually includes a chief financial officer (CFO).

The CFO oversees the treasury and accounting functions which also have subordinate positions that perform certain treasury or accounting tasks. The CFO also consolidates and confirms as accurate financial information that will aid the CEO and the board of directors in their strategic planning. The CFO is held personally responsible for the financial information they provide, as specified in the Sarbanes Oxley Act of 2002.

The treasury manager should focus on key objectives that include:
• The maintenance and monitoring of the operating cycle cash flow;
• The optimal use of cash resources balanced with the need for cash liquidity;
• The internal dissemination of financial information to the appropriate department;
• The maintenance of short, medium, and long term financing;
• The monitoring of any/all financial risk including interest rate and foreign currency rate risk;
• The maintenance of shareholder relations regarding trusts and dividend payments

Basic treasury objectives
A treasury manager’s role can vary considerably between different kinds of organizations. A treasury manager’s responsibilities can range from cash management to pension disbursement to implementing benchmarking. An organization can have a centralized or decentralized treasury which also affects a treasury manager’s responsibilities. Regardless of the organization or its treasury, a treasury manager has basic responsibilities or objectives that apply to most public or private treasury situations.

These responsibilities include:
• Cash management that includes calculation of the daily cash position and approval of cash transfers
• Anticipating cash flows and then securing short, medium, and long term financing when needed
• Fostering good bank and vendor relationships
• Accurate financial and tax reporting
• Monitoring interest rate and foreign currency exposure (if applicable)

Treasury structures

The treasury of a firm can either be structured as a cost or a profit center. Firms that sell financial products, securities, and/or commodities generally structure their treasury as profit centers because it is expected that the treasury activities are inherently profitable. Otherwise, the treasury is considered part of the costs of doing business. The treasury of a firm can also be centralized, decentralized, regional, shared (as in a shared service center, SSC), or serve as the main banking entity within the firm (the in-house banker).

Enterprise treasury management

Enterprise treasury management is the managing of all of a firm’s financial activities electronically. It is efficient, accurate, and cost effective. Because of the technological advances, enterprise treasury management can centralize financial activities and outsource financial duties like accounts receivable/payable. In some cases, entire treasury functions can be outsourced. It can improve efficiency by observing how other firms have successfully restructured their financial organization, and implement the same strategies (benchmarking). Enterprise treasury management can also make re-engineering of their business practices more streamlined and integrated with other corporate functions.

Financial positions

In larger firms, there is often a Treasurer, an Assistant Treasurer (AT) or a Manager of Treasury Operations, and a Controller that are jointly responsible for the firm’s financial reporting, auditing, and planning. Together the Treasurer and Assistant Treasurer monitor the daily cash status and liquidity as well as manage and delegate as needed, all the other responsibilities normally assigned to the treasury. The Controller is responsible for most internal accounting tasks such as accounts payable, tax filings, financial statements preparation and budget monitoring. The positions that typically answer to the Controller and/or the Treasurer are the Risk Manager, Credit Manager, Cash Manager, Accounts Payable Manager, and occasionally the Internal Auditor.

Cash flow

Treasury managers must consider the cash in-flows, cash out-flows, and internal cash flows between departments. These flows essentially comprise the operating cycle that the treasury manager must monitor. The operating cycle starts with resource acquisition and proceeds to the conversion of resources into goods and services (cash out-flow) which are then marketed and sold. The sale of goods and services results in the collection of sales receipts (cash in-flow). This is the cash flow timeline. Obviously, there is a time delay between the beginning and ending of the operating cycle.

There is a time interval between cash out- flow and cash in-flow. Specific stages within the operating cycle also have time delays. A ‘float’ is the time interval between cash out-flow and cash in-flow of a particular stage in the operating cycle. Floats can either be a collection float or a disbursement float, depending on which stage of the cycle it occurs. With the advancement of technology, operating cycles of many firms have increasingly shorter float times or delays. Therefore, treasury managers can more efficiently manage the cash flows.

Tasks of cash management
Daily cash management is essential to any organization. Effective cash management requires that at least five key tasks be completed regularly. They are:
• A cash position worksheet should be completed.
• The cash balance in bank accounts should be monitored daily.
• Exceptions on record should be reconciled.
• Funds should be obtained and utilized as needed.
• Accounts receivable and payable should be informed and included in cash management activities as needed.

There are some other tasks of cash management. Treasury management systems should be evaluated regularly. Financial risk from foreign currency exchange should be monitored regularly. Quarterly or monthly bank- compensation arrangements should be monitored. Annual bank reviews should be conducted and recorded. Any other departmental activities that have a financial impact on cash management should be reviewed daily using the firm’s ERP system (Enterprise Resource Planning).

Raising funds

Various financial markets act as an intermediary between investors and borrowers. To raise funds, a firm (or individual) can issue debt (i.e. mortgage or bond) or issue equity (i.e. stock). A debt instrument that has less than a year to maturity is a short term debt. Money markets trade in short term debt instruments like banker’s acceptances, repurchase agreements, Treasury Bills, and commercial paper. A debt instrument that has greater than a year (usually more than ten years) to maturity is considered long term debt. Capital markets trade in long term debt as well as in equity instruments. Equity instruments, such as stock, are claims on ownership of the firm.

Primary and secondary markets

When a firm chooses to raise funds by issuing new equity (stocks) or debt (bonds), they sell to a select group of initial borrowers. Investment banks are usually the initial borrowers because they have the resources to underwrite the security and guarantee a public price for it. This is the primary market for stocks and bonds. After the initial selling in the primary market, the issues are resold in the secondary market via brokers and dealers through stock exchanges and ‘over the counter’ markets. Even though the issue has already been sold on the primary market, it is considered an initial offering to the public on the secondary market.

Stock exchanges

The selling of stocks and bonds is dependent on the availability of willing and able buyers. It also requires regulated trading practices that help streamline the trading process. So, secondary markets for stocks, bonds, and commodities were created and organized first as ‘Exchanges’ and then as ‘Over the Counter’ markets. Historically, exchanges were physical places like the New York Stock Exchange (NYSE) and the Chicago Board of Trade (CBOT) where brokers and dealers met to trade stocks and commodities face to face.

Commercial banks

There are about 8000 commercial banks in the U.S. today, not including their respective branches. There are also investment firms that act as financial intermediaries. Investment intermediaries include investment banks, finance companies, mutual funds, and money market mutual funds. These kinds of financial institutions are more difficult to quantify since they often exist as parts of larger firms or organizations. A commercial bank is a financial intermediary that accepts deposits and makes loans. However, as a result of extensive consolidation of financial institutions and services, commercial banks now provide a broader range of services.

The services many banks now provide include:
• Deposit accounts (a core function of a commercial bank)
• Credit/loans
• Payment and collection/Risk management
• Agent or fiduciary services/Trade services
• Investment banking/Consulting

Kinds of cash accounts
Commercial banks have traditionally derived their primary funding from customer deposits. These are demand deposit accounts (DDAs) because the customer can at any time demand their deposited cash physically, or more commonly via check. Time deposit accounts (TDAs) are similar except that the funds must be kept in the account for a specified time to avoid withdrawal penalties. A Certificate of Deposit (CD) is a common example of a TDA.

Thrift institutions

Thrift institutions include savings and loan associations, mutual savings banks, and credit unions. They are regulated by the Office of Thrift Supervision (OTS) and insured by the FDIC. They accept deposits for savings, checking, and time accounts just as commercial banks do. Yet historically thrifts were restricted to making mortgage loans for residential housing only and small consumer loans. The Depository Institutions Deregulation and Monetary Control Act of 1980 effectively expanded the services that thrifts could provide.

Federal Reserve System
The Federal Reserve Act of 1913 created the Federal Reserve System that includes 12 regional reserve banks, a 7 member board of governors, and the Federal Open Market Committee (FOMC). Together they share responsibility for determining which monetary policy steps should be taken. The U.S. is divided into 12 banking districts and each district has one main Federal Reserve Bank. There are about 4800 commercial banks that are members of the Federal Reserve System. In order to be a member of the Federal Reserve System, a bank is required to buy stock in the main Federal Reserve Bank within their district.

The Federal Reserve System is divided into 12 districts or regions. Each region has a main regional bank. Monetary policy is implemented through these 12 regional banks. These regional banks are expected to:
• Make discount loans to their district’s member banks
• Issue new currency
• Withdraw damaged currency
• Clear checks
• Examine state chartered member banks and bank holding companies
• Evaluate member bank’s request to expand
• Collect information on local business conditions and the effects of monetary policy

The purpose of the Federal Reserve System: The Federal Reserve Act of 1913 established the Federal Reserve System to provide a safer banking system and a bank for the U.S. government. It was to be a decentralized federal banking system with only the authority to control the discount rate. Gradually, new legislation was passed that required it to determine and implement monetary policy. The Federal Reserve Board of Governors influences the money supply by setting the reserve requirements and the discount rate. The reserve requirement is a percentage a bank’s funds that must be kept on reserve at the Federal Reserve Bank. The discount rate is the interest rate that the Fed charges member banks for loans.

OCC
First established in 1863, the Office of the Comptroller of the Currency (OCC) is a department of the U.S. Treasury. Through bank examiners it regulates federally chartered commercial banks. It is responsible for examining the books of these banks and is authorized to impose restrictions on the assets these banks can hold. It also is authorized to grant charters to new banks or renew charters of existing banks. It also supervises foreign bank branches within the U.S. If a bank fails to comply with banking laws and regulations, the OCC has the authority to take action against the non-compliant bank. Habitual use of unsound banking practices will result in warnings and then action from the OCC.